Egypt’s Energy Efficiency Ambitions: An Effective Economic Program for an Oil, Gas Renaissance.
To accomplish this, national production needs to be improved and production efficiency must be enhanced to appropriate levels, taking into consideration commitments to decarbonization and global competition. Improving energy efficiency is the step that needs to be taken for the nation’s objectives to be fully realized.
For this reason, the Ministry of Petroleum and Mineral Resources took a balanced approach in introducing the Egyptian Petroleum Sector Energy Efficiency Strategy 2022-2035, which is a roadmap that involves a two-stage approach. The first stage sought to solidify the foundations for effective energy management to address current challenges and stimulate development in the market for energy efficiency services. At this stage, this strategy would also support mainstream energy efficiency within corporate culture throughout the sector while evaluating the energy efficiency potential of major energy consumers. Once the necessary foundations are built, the second stage would seek to enhance and intensify energy efficiency operations within the sector while using an innovative energy management approach to impactful energy savings. The second stage would also focus primarily on how energy efficiency can be enhanced to benefit the transport sector, a sector part of the market that is currently undergoing massive reform due to the transition to natural gas. Both stages have a significant amount of overlap.
A critical part of boosting energy efficiency was ensuring that the appropriate economic reforms were put in place and this Egyptian government has launched an ambitious, yet challenging reform program to minimize energy subsidies over the course of five years. The initiative was executed in three phases: the first in 2014, the second in 2017, and the third in 2018. As a result, the fuel subsidy percentage decreased from 70% of the state budget’s total government expenses in 2012–2013 to an expected 50% of all government expenses in 2017–2018. Later on, the Egyptian government gradually worked to eliminate fuel subsidies within the following years after that.
In addition, it is important to note that one of the main market obstacles to energy efficiency would be removed if market prices for energy products were used to increase the economic sustainability of energy efficiency initiatives. In Egypt, the petroleum products market follows an automatic pricing mechanism, where prices are mainly derived from fluctuations in global oil prices, financial indicators, exchange rates, and a variety of other variables.
Moving to factors relating to Associated Petroleum Gas (APG), an official government report about Egypt’s energy efficiency strategy titled “Egyptian Petroleum Sector Energy Efficiency Strategy 2022-2035” states “Associated Petroleum Gas (APG) flared, vented or used in the upstream operations and off-gas flared in downstream processes have no shadow prices. In the absence of any regulatory measures, the zero-pricing APG is a major factor leading to increased gas flaring. A key component to successfully achieving gas flaring reductions is the use of incentives for APG utilization. The most obvious incentives are related to gas markets and the ability of upstream producers to sell recovered gas & products at a competitive gas price and to several different off-takers.”
Promoting energy efficiency from a financial perspective requires an innovative approach to investment. The government has adopted various policy frameworks, strategies and approaches to be implemented due to the high initial cost of energy efficiency solutions and the risks that users must take. Therefore, Third Party Financing (TPF) and, more recently, the Global Climate Fund (GCF) are the most often utilized funding tools for these kinds of initiatives. These strategies need to be adapted due to financial challenges to energy efficiency related to the high initial cost, the financial, technological, and performance risks, and the lack of investment resources, which financially impede the promotion of energy efficiency. Due to the unique characteristics of these projects and the risks involved, investors and funding institutions find it challenging to get their money back.
Energy efficiency in Egypt has the potential to not only drive sustainability but also boost production to the levels required for the country to achieve its vision of becoming a regional energy hub. Maximizing energy consumption efficiency is essential for Egypt to fully capitalize on its production capabilities. Studies have shown that the state’s current strategy has been effective thus far and is expected to remain so in the coming years.